AUD 2 Flashcards
Additional requirements for auditors when auditing F/S prepared under special purpose framework?
1) Obtain an understanding of the purpose, intended user, and mgmt’s steps taken to determine that the SPF is acceptable;
2) Obtain agreement of management that it acknowledges and understands responsibility;
3) Obrain an understanding of any significant interpretation of the contract (if contractual basis) that the mgmt made.
Special requirements auditor’s report on special purpose framework F/S?
1) Non-GAAP titles and terms (F/S should be subtitled to reflect the SPF);
2) Mgmt’s responsibility in determining that SPF is acceptable;
3) except for regulatory basis intended for general use, must add an emphasis-of-matter paragraph to emphasize it’s SPF;
4) except for regulatory basis intended for general use, must add an other-matter paragraph to restrict use;
Which SPF F/S audits require auditors to express an opinion about weather the F/S are fairly presented, in all material respects, in accordance with GAAP?
Regulatory basis intended for general use.
Dual opinion-on SPF and on GAAP.
When taking 2 engagements to report on a complete set of F/S and a specific element of those F/S, what needs to be added to the reports?
Issue 2 reports. Include in the report on the specific element an other-matter paragraph stating the date and opinion of the complete set of F/S.
When is independence required?
Whenever giving assurance/opinion-positive or negative.
Can an auditor give assurance on compliance with contractual agreements or regulatory requirements related to F/S? What report?
Yes. Negative assurance only and auditor must have audited client’s F/S. This is not a compliance audit nor an attestation engagement. Report on other-matter paragraph of audit report or issue a separate report. Report must restrict use.
Can auditor report on a single F/S without auditing the complete set of F/Ss? How about report on compliance with contractual agreement? or Summary financial statemnts?
YES. NO. NO.
What opinions are appropriate for summary
financial statements audit?
Unmodified or adverse, if the full F/S opinion is unmodified or qualified. Report on if they are consistent, in all material respects, with the audited full F/S.
WIthdraw from this engagement if the full F/S is adverse or disclaimer.
What does SSARS( statements on standards for accounting and review services) regulate?
Compilation and review services for Nonissuers. Do not apply to other accounting services( prepare J/E, tax return, consultation, etc)
What’s the objective of a compilation? Is engagement letter required for compilation service? What about compilation report?
To assist management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance. YES.
Report not required if F/S is not intended for third party use. Just use the engagement letter and restrict use.
Is independance required for compilation?
NO, but need to disclose in compilation report.
In a compilation engagement, what to do when there’s omission (all or partial) of disclosures, departures from GAAP?
Omission of disclosures are OK as long as it’s not to deceive users, the F/Ss are otherwise in conformity with GAAP and compilation report warns users.
Departures from GAAP at least needs to be disclosed in the report, if not enough (accountant’s judgment) to indicate the dediciency, he/she should withdraw.
What procedures are required in a review engagement?
ULIARCPA.
Understanding with client-engagement letter.
Learn about the business.
Inquiries to insiders-corroboration not required.
Analytical procedures-ratios, patterns to detect unusual relationships.
Review other procedures.
Client representation letter-to the accountant, acknowledge mgt’s responsibility, confirm full and truthful responses, knowledge of fraud, etc. dated at review completion (same date as review report)
Professional Judgment to Evaluate Results.
Accountant (CPA) Communicates Results-review report. state review is substantially less in scope than an audit. accountant is not aware of any material modifications(limited assurance).
What to do when there’s departure from GAAP in a review engagenment?
CAN NOT issue qualified or adverse “opinion”. Can modify the report and disclose the departure. “Based on our review, with the exception of the matter(s) described in the following paragraph, I am not aware of any material modifications that should be made…”
If modification not adequate, should withdraw.(similar to compilation)
Can an accountant restrict use of a compilation or review report?
Yes.
